RIYADH, Oct 26 (Reuters) – Saudi Arabia plans to open further the biggest Arab bourse to foreign investors but will do so only in gradual steps for fear of letting in â€œhotâ€ speculative money, the head of the kingdomâ€™s financial regulator told Reuters.

The worldâ€™s top oil exporter might also allow foreigners access to its secondary bond market and wants more corporate statements in English, Abdulrahman al-Tuwaijri, chairman of the capital markets authority (CMA), said in an interview on Monday.

Saudi Arabia has started opening up its stock market, the regionâ€™s biggest by far and most liquid, through indirect ownership and most recently exchange traded funds (ETFs) that track indices.

But Tuwaijri cautioned that the kingdom, a highly conservative country whose financial markets were long closed, would take its time amid worries about speculative money.

â€œIt is not that I want to shield the Saudi market… (but) we are more concerned about hot money and we want to see it in a very well organised way that they are coming into our…market,â€ he said.

With the Gulf Arab kingdom benefiting from high oil prices and rolling out a $400 billion infrastructure programme — the worldâ€™s biggest stimulus relative to GDP — foreign banks are keen on the Saudi stock market and biggest Arab economy.

HSBC and Deutsche Bank have both set up shop to start buying or covering Saudi shares while Goldman Sachs issued bullish research notes on six Saudi banks.

But foreigners still make up only a fraction of trading. Big investors such as pension funds want the right to buy shares directly and not go through Saudi intermediaries who technically own the stock under the current rules.

As a next step to broader access, Saudi Arabia will allow more ETFs which are traded like stocks, while other ways to invest are being studied, Tuwaijri said.

â€œWe are just waiting for authorised persons to introduce more ETFs,â€ he said.

There are now two ETFs, both launched this year by Saudi investment bank Falcom Financial Services, but interest has been weak.

â€œIn terms of liquidity, it is not really the most incentive for us but what we need is more research, more technology, more analysis of our market, more stability of our market and that comes with institutional foreign investors,â€ he said.

â€œWe are studying more steps to (open) it, not ETFs. ETFs are already there, but we are studying more modalities,â€ he said, declining to be more specific.

The Saudi bourse is up 3 percent this year, behind Qatar, Abu Dhabi and Oman but was the best performing Gulf bourse last year.

NO RUSH TO CHANGE

Tuwaijri did not rule out opening up the new market for secondary bonds and Islamic issues, or sukuk, to foreigners but said this would have to wait.

â€œI think for the time being it is only for residents but this is probably another issue that needs to be discussed.â€

Saudi Arabia would also not allow shorting stocks in the near term, he added. â€œProbably we will look at it but probably we will not introduce it soon.â€

He said the regulator will continue a campaign to fight bourse violations after withdrawing 22 financial licenses and slapping dozens of fines on firms and investors, among them big names such as the biggest Islamic bank, Al Rajhi Bank.

â€œWhen they violate the rules we have to punish them and we have to withdraw their licences,â€ Tuwaijri said.

Tuwaijri also called on firms to disclose more and publish statements in English to the bourse, where even big firms often report only in Arabic.

â€œWe hope to see more discipline,â€ he said.

He dismissed concerns about the health of the IPO market after one company in October cut the retail tranche of its public offering — the first time in Saudi history — due to sluggish demand.

â€œThe appetite is less because of the conditions now but Iâ€™m sure when things pick up and the market starts to also pick up we will see more appetite for IPOs,â€ he said.

In February, Saudi travel agency Al-Tayyar Travel Group cancelled an initial public offering due to weak demand. (Editing by Michael Shields)